DC: If You Build It, Will They Really Come?

Top tenants want new, high-quality space. But is that reason for developers to build without leases lined up? Cassidy Turley chief economist Kevin Thorpe (snapped yesterday) tells us long-term fundamentals in most areas are good enough to give builders the green light. 63% of buildings 15k SF or greater in the US are 20 years or older, leaving many big markets with outdated, obsolete product. (That's the kind of harsh critique that drives older buildings to marry buildings half their age.) So there are big opportunities for savvy developers to tear down older buildings and construct newer, more efficient product instead.

Of course, some developers have to wait it out longer than others when it comes to spec. In Arlington, Va., across the Potomac River from DC, Monday Properties is looking for tenants at 1812 N Moore St (pictured), a dramatic 580k SF skyscraper that recently delivered and is currently the region's tallest building. (It's literally lonely at the top.) While going spec often comes down to timing and luck, Kevin says, long-term job growth numbers actually leave markets such as Austin, San Francisco, Boston, Seattle, and New York undersupplied going forward.

Kevin's real million-dollar question is what happens to outdated Class-B and C product. Some investors may see those buildings as big yield opportunities, since in some markets, Class-A may get filled up quickly and demand may spill over into the next tier. But many tenants simply "don't want B or C no matter what, and you have to repurpose those buildings to make them functional," he adds.